Jyothy Labs Limited (JYOTHYLAB.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jyothy Labs Q1 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please only note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities Limited. Thank you, and over to you, sir.

Hi, everyone. It's a wonderful good evening from the ICICI team. It's an absolute pleasure once again to host the management of Jyothy Labs Limited for the results conference call. The company is today represented by M.R. Jyothy, Chairperson and Managing Director; and Mr. Pawan Agarwal, CFO and EVP. Over to management for the opening remarks, post which we'll open the floor for Q&A. Thank you. Over to you, Ma'am.

Thanks, Manoj. Good afternoon, everyone. Thank you for joining us today for Jyothy Labs Limited Q1 FY '26 earnings call. Our financial results and investor presentations have been uploaded to our website and to the stock exchanges. I trust you have had the opportunity to review them. The broader operating environment in Q1 remained mixed, with lingering inflationary pressures and fragile urban sentiment. Consumers, particularly in urban centers, continue to either down trade, or defer nonessential purchases. These behavioral shifts have been a recurring theme across the sector over the past 5, 6 quarters. However, we believe we are now at the cusp of a gradual broad-based recovery. The Indian Meteorological Department's forecast of an above normal monsoon is encouraging. A favorable monsoon not only augurs well for rural demand but also plays a vital role in stabilizing food inflation. It is one of the key levers that would revive household spending in the coming quarters. Recent fiscal measures announced by the government such as income tax relief and targeted rural welfare schemes, combined with the RBI's calibrated interest rate cuts, are already beginning to reflect in consumer sentiment. If these tailwinds sustain, we expect the demand environment to firm up meaningfully, especially from Q3 onwards. While global uncertainties, particularly the geopolitical tensions in the Middle East have triggered raw material supply disruptions and input cost volatility. The overall trend points towards improving stability. Crude oil prices have softened, although, derivative costs such as LAB, SLES, PFAD and PKFAD are yet to correct proportionately due to lag effects and processing costs. These should ease gradually as the supply chain normalizes. Channel dynamics continue to evolve. Rural markets once again outperformed the urban areas, demonstrating inherent resilience. General trade faced volume pressures, while modern trade, including e-commerce and quick commerce, sustained double-digit growth. That said, the rise of quick commerce must be viewed with nuance. While its share in the overall mix is expanding, it largely substitutes traditional outlets rather than contributing to incremental consumption. Pricing remains the primary differentiator on these platforms due to similar user experiences. Encouraging early signs of urban demand recovery have started to emerge, especially from July onwards. However, we need to wait and watch the demand scenario, especially in coming months and quarters. Now, let's look at the performance of our various categories. In Fabric Care, both Main Wash and Post Wash segments delivered a satisfactory performance, clocking mid-single-digit volume growth. Our liquid detergent range continues to stand out. It more than doubled its growth versus the same period last year, and delivered strong sequential double-digit value growth. With brands like Morelight, Henko, Henko Matic, Ujala and Mr. White catering to varied consumer needs, this category remains a strong pillar of our growth. That said, it must be noted that competitive intensity in the space is on the rise. We are actively monitoring the pricing environment, and are taking calibrated steps to preserve our value proposition. Detergent powders and bars also performed steadily. We are pleased with the early market response to our fabric conditioner, Ujala Young & Fresh, which is gaining traction in select markets. During the quarter, we successfully launched a TV commercial in select markets, featuring Actress Keerthy Suresh, endorsing the product. The Dish Wash segment faced intensive competitive activity, particularly in terms of damage offers. This impacted value growth despite healthy volumes. Pril liquid posted double-digit volume growth and Exo bars grew in high single digits. These numbers are a testament to brand strength and continued consumer preference. While year-on-year numbers were flat in the Personal Care segment, sequential growth gives us confidence. Jovia, our new beauty soap is gaining market acceptance, and our intensified efforts behind Margo brand are already showing encouraging signs through enhanced visibility and consumer recall. The Household Insecticide segment remains a work in progress. While near-term growth may remain muted, we are focused on improving profitability and scaling up the liquid vaporizer category, and recent launched NPDs, like Aerosols and Racquets. Our medium-term goal remains clear to significantly reduce losses and turn around this category in a capital-efficient manner. Now, I will talk about the financial performance of the company. Revenue from operations for Q1 stood at INR 751 crores, reflecting 1.4% value growth and 3.6% volume growth year-on-year. The value volume gap was primarily driven by higher grammage and promotional prices in select categories. Gross margin was at 48%, down 330 bps year-on-year due to input cost pressures and increased competitive intensity in Dish Wash. We implemented calibrated price increases in some of the product categories to partially offset these pressures. Advertisement and promotion spend stood at 7.8% in Q1 moderated slightly to reflect the prevailing market context. However, our commitment to long-term brand investment remains intact as evident from our annual brand spends. Despite elevated input costs and volume pressures, we maintained our EBITDA margin at 16.5%, in line with our guidance. Operating EBITDA stood at INR 124 crores and PAT at INR 97 crores. We approach second half of the FY 2026 with cautious optimism. While the near-term headwinds, especially in the urban markets persist, we believe the tide is slowly turning. A combination of a good monsoon, easing inflation, supportive government policies and improving consumer sentiment lays the foundation for stronger performance in H2. We expect Q3 and Q4 to show meaningful improvement, supported by recovery in urban discretionary spending momentum in the festive season, increasing traction from our new product launches and ongoing gains in cost efficiency and distribution expansion. We remain focused on innovation, category development, scaling up new launches, digital execution and sharpening our go-to-market strategy. We are committed to delivering profitable, sustainable and capital-efficient growth. Our strategy has been consistent, balancing agility with discipline, while being acutely consumer centric. Before I close, I want to thank all our stakeholders, customers, shareholders, employees and partners for their trust and continued support. We look forward to building on this foundation and delivering superior value in the quarters ahead. With that, I conclude my opening remarks and look forward to your questions. Thank you.

[Operator Instructions] The first question is from the line of Sonal from Prescient Capital.

This is Sonal Minhas. I hope I'm audible?

Yes, you are.

My question is, with regard to the Household Insecticides segment. I'm sure there are some discussions at the management level as to how much bleed we can sustain as a team, as a company beyond which we decide to sell this business off, or carve this out? Any guidance for investors, shareholders in valuable in this regard?

So we have indicated in the past that we are actively working towards turning around this category, Household Insecticides, and we have taken certain measures and there are a few things which are in pipeline. We have launched new products also in Aerosol and Racquets in the previous quarter. And we have taken some price increase in coil. So, there's a lot of action which is happening in order to improve the performance of this category. We have also indicated in the past that we are hopeful that in next year, FY '27, we'll be able to turn around this category and necessary steps are being taken in that direction. So as of now, there is no intention to sell, or divest this particular line of business of the company.

Got it. And so FY '27 should be considered as like the year where we decide that, this is going in the right direction or it's not going in the right direction?

Yes. I mean the progressive steps that we are taking, the results should be visible slowly and gradually. And by second half of the next financial year is what we are aiming to turn this category profitable.

Got it. My second question is, with regard to the softness in demand in the urban side. I wanted to understand some more like, what you're seeing this demand. Is this something which was earlier fueled by credit, or was something which was largely driven by, let's say, some segment of population, which consumed a lot earlier and did not. And hence, there is kind of a delay in the next set of demand that is coming? Because the products we have here, the Fabric Care, Dishwashing, these are readily consumable items. I understand, they are down trading on volume. But what was the issue in terms of this growing very fast last year? Was there some stocking in the channel, which is getting released now in this year and hence, we've seen demand come back? Or this is linked to credit on the online channels, people bought on credit? Just trying to get a sense of this.

So Sonal, largely, this softness in demand when we say, it is moving from traditional trade to modern trade, and your e-commerce, and largely e-commerce and your quick commerce gaining bigger traction, which we are also seeing internally in the company. We are growing at double digits there. But not all of it is getting converted. Basically, ideally, it should have been that all of it, which is your general trade and modern trade, all of them grow, and this should be ideally a top up, but consumers are seeking convenience and more and more, we see traditional outlets lose out on business, or are not able to generate that kind of sales, some of them even closing down. So that's the kind of thing when we are saying more urban thing where these quick commerce and e-commerce exist, that's where we are seeing that shift, while for us, rural seems to be okay. So, this is what we are seeing. There's nothing in relation to credit or anything of that sort.

Got it. So, is there a need for repackaging, rebranding on these modern channels, because the consumer is looking at a different product or different grammage or different packaging price point altogether?

Yes, yes. So, all that is happening while we are talking. So hence, when we say that most of the business that is affected is only the general trade. Our modern trade, e-commerce, all of that are growing in higher double digits. So --

As you mentioned, yes. Yes.

Yes. Yes. So, they are the consumers where we are packaging it, the SKUs, the pricing, all of it is being taken care, investment, all of that is being taken care of. If the traditional channels, which obviously, if as a consumer, especially in metros, where time is also a thing, time traffic, all of that, also money, right? So, an e-commerce and a quick commerce is there to satisfy all of that, that's where the traditional outlet seems to lose. So that's the shift we are seeing in terms of channel, and that may stay for some time.

The next question is from the line of Manoj Menon from ICICI Securities.

Just a few clarifications, if I may. Jyothy, one, any more, let's say, qualitative or quantitative color you could give on, let's say Jovia?

See, I can only say qualitatively, Manoj, that as of now, we are seeing some repeats happening, and it's been received fairly well. Numbers, we won't be able to say. It is overall covered in the thing. But yes, it's a very small start, but a good start.

Understood. So, can I just -- let's say, if I may, is it in line with your expectations, exceeded, underwhelmed? How do you look at it?

I would say, it is in line, neither exceeded nor bad. So, it's fairly okay from the current demand perspective. And we are taking it slow and steady.

Okay. Understood. Secondly, when I look at the overall volume growth of 3.6% and also the, let's say, the segment growth -- revenue growth rather, just trying to link both and trying to understand which are the categories which should have driven these volume growth, let's say, which are the categories that have grown, let's say, far higher than the overall?

So, if you look at Manoj, volume growth in Dish Wash category has been quite impressive. In bars, we have high single digit. In liquid, we have double digit in mid-teens. So there, the volume growth has been pretty decent. In Fabric Care also, Main Wash and Post Wash, both have done reasonably well in the mid-single digit. In Personal Care, we have taken price increases as we had indicated in the earlier call, but there, we had some stress on the volume. And HI, of course, the coil is having pressure on the volume side. So that's the broad construct.

Understood. In Personal wash, what we broadly heard from 2 other listed players actually that, the Personal Wash challenge is largely to do with the INR 10 price point, right? Would that be a fair comment for you also?

Sorry, come again, Manoj?

Well, in Personal Wash, in soaps actually, the problem situation identification which I have heard from HUL and Godrej actually has been that it's largely limited to the INR 10 price point grammage reduction, which is resulting in an overall volume decline. Would that be the same assertion for Jyothy Labs as well?

Yes. Sort of we also tend to agree.

Okay. Fair enough. And secondly, sir -- yes. Yes, sir, continue.

No point on the volume growth. If you look at the numbers, excluding HI segment, then our volume growth is close to 5%, 4.8% actually. So that way, volume growth has been pretty decent on an overall company level basis.

Understood. Just one clarification here. There is no category in which volume growth has been significantly ahead of revenue growth, right?

In Dish Wash, as I said, the liquid dishwash has been -- volume growth has been pretty high.

Okay. Okay. Sure. And if I heard correctly, Jyothy Ma'am was telling a little earlier in the initial remarks that higher competitive intensity or activity in Home Care, right? Did I hear it correctly?

Yes. I mean, in Dish Wash, we have seen intensity.

Okay. Okay. Okay. One last thing, and I'll pass it, and I'll fall back in the queue. Again, some color in terms of your Home Care performance, right, because there are different segments, different formats. Liquids has been a bigger adoption you have seen it, et cetera. So, any color you could add on Home Care? And how do you see, let's say, Home Care performance for the next, let's say, 1 or 2 years?

So Manoj, competitive activity, when we say it's not restricted to one category, it is there across. It's a very -- the category that we are in is highly competitive. Every segment, every new category or new launch, everything has to -- are facing that kind of a thing. And rightly so with so many players coming in and trying to be good or trying to revive that consumer sentiments, trying to create more volume-related purchases, trying to woo the consumers. I think all of them are being competitive and which is what maybe is required for the current environment. And that is -- and we are also accordingly calibrating whether be it the grammage, be it the price cuts or offering of promos. So, it's a combination of all of this. It's not 1 category alone. It is there across. And I think that this whole thing when everybody does it, basically, the consumer sentiment will be better. Going forward, maybe it will result in more of volume uplift going forward. Yes. But being in Home Care, yes, it's a very, very competitive segment. And it looks like that will remain going ahead. Yes, but we are trying our best to see -- to bring in relevance and to bring in the best quality to the consumers at a good price. So yes.

The next question is from the line of Harit Kapoor from Investec.

I had a few. So, one was on the pricing versus volume growth. So, difference is about 2.5%, 2.2%. Now does this quarter reflect the full impact of price cuts, grammage increases in your view? My question is really, just to understand the price volume differential at 2%, 2.5%, 3%. Is this fully reflecting the actions in the quarter or it was -- there were further actions mid-quarter where because of which this differential would increase in Q2?

It reflects broadly it covers the full picture. So, this gap, you will see probably narrowing volume versus value going forward.

So Pawan, when we should see this, you think like when the -- from Q3, or the narrowing or should from Q2 only a little bit?

Q3 would be the fair time frame. Q2, more or less, it will be the same, but Q3 onwards, it should start narrowing because last year, the extra grammages, higher promotions, et cetera, intensity increased quarter 2 onwards. It picked up momentum. So, I think quarter 3 onwards, you should see this gap narrowing.

Got it. Got it. The second thing was on Dish Wash, where you mentioned very high single-digit growth in bars and double digits in the liquids. So, the differential looks like almost a double-digit impact, which means like a higher grammage plus price cut impact. Just wanted to get your sense about, is this the most competitive space right now for you in terms of a subcategory? Are you seeing the highest level of competitive activity here?

No. I mean, it's very difficult to point it out in that manner, because as Jyothy indicated, competitive intensity is high across segments. However, recently, of late, we have seen intensity increasing in Dish Wash segment, but other categories also have high competition.

Got it. Got it. And if you look at the EBIT margins on the standalone side, you've seen a reduction sequentially from Q4 to Q1 in the Fabric Care, but Dish Wash has increased now expanded. Now, I didn't understand this, because if you think about price cuts are higher in Dish Wash in terms of volume, volume differential. Also, the commodities are not extremely different. So if you could just help me understand, is there a difference -- significant difference in the RM structure in Fabric Care because of which sequentially, you've seen a fall versus dishwash?

No. In Dish Wash, you are right, your observation is correct. The margins -- the reasons for margin is operational efficiency. And also, at the plant level, manufacturing box-wise, the operational efficiency we drove, and a little bit of marketing spend allocation between categories also -- that also paid.

Okay. Got it. Got it. That's very clear. And last couple of things. One was -- both for Jyothy. You did mention July is a little bit better. So, are you saying that kind of June exits and early July have been better than the average volume growth of Q1? Is that the comment you're making?

No, July, we are seeing early signs in terms of secondaries. Secondaries are picking up in July, not necessarily in June. But July, we saw some towards the second half of the month, we saw some improvement on the secondary side. So -- but it's too short a period to draw any conclusion, but these are our early readings.

Yes, very clear. And lastly was on this -- you mentioned innovation to be a driver in your outlook. Do you see a substantial increase in our own innovation intensity in 2H in line with our estimation of a growth improvement in the macro? Is that the way we should think about it? I'm thinking about FY '26. So should innovation intensity be or would we see more launches in H2 coinciding with hopefully an improved demand environment?